Tuesday Options Recap

Sentiment

At risk of sounding like a broken record, stocks are trading mixed Tuesday. The major averages slipped early, as commodity prices slumped and a number of companies -- including oil giant BP and Valero (VLO) -- slipped on earnings news. Crude oil is down $1.14 to $67.24 a barrel and gold gave up $17 to $939.30 an ounce.

A weaker-than-expected reading on consumer confidence added to the cautious underlying tone. The data, released 30 minutes into the trading session, showed confidence slipping to 46.6 in July, down from 49.3 in June and below economist projections of 49.

However, the selling never really gathered any momentum and, as has often been the case in recent weeks, trading turned mixed in afternoon action. The NASDAQ has battled back to positive territory. The Dow Jones Industrial Average is down 34.

With about 45 minutes left to trade, the CBOE Volatility Index (.VIX) is up for a second day. After closing at 9 month lows near 23 Friday, VIX is up .93 to 25.21. Trading in the options market is picking up from the slow pace seen Monday. with 5.1 million puts and 6.8 million calls traded, a ratio of .74 (compared to a 22-day average of .85).

Bullish Flow

Cigna (CI) is heading higher and calls are active amid relative strength in the health insurance names Tuesday. The sector is stronger after AP reported that a bipartisan group in the Senate held secretive talks and is working on a health care compromise that omits a public insurance option that the Obama adminstration favors. This might be viewed as a positive for CI, AET, CVH and private health plan providers. CI is up $2 to $28.44 and 17K options traded. Call volume accounts for 90%. Implied vols edging down to 47.5, from about 50.5. Earnings due out Thursday (before market).

Bearish Flow

Knight Capital (NITE) shares fell 47 cents to $18.80 yesterday and NITE options volume increased to 3X the average daily. 3,300 puts and 220 calls traded. August 20 puts saw the most action. 3,170 traded and open interest increased by 2999 to 3,042. In addition, with about 85 percent of the volume hitting ask-side, it looks like put buyers were taking new positions. Implied volatility jumped to 34, from about 29 the day before.

Implied Volatility Movers

USEC (USU) implied volatility is higher after the government denied the company's request for loan guarantees. USU is down 35 percent to $4.02 and implied volatility is running up to 118, from about 110 the day before.

Implied volatility is also higher in SLM (SLM), Gilead Sciences (GILD), and WESCO (WCC). Meanwhile, implied volatility is lower in Valero (VLO), BP (BP), and Clorox (CLX).